Dept. of Justice: IRS tax refund fraud at all-time high

April 15 IRS tax filing date has scammers falling over themselves

Holder/DOJ

Calling it an "increasingly urgent problem" US Attorney General Eric Holder warned consumers and businesses alike that scammers looking to snatch fraudulent tax refunds based on stolen identities is at an all time high.

Holder said that a growing pool of criminals are engaged in tax fraud, including gangs and drug sellers seeking quick access to cash.  He urged Americans to protect themselves by reporting suspicious activity and learning more at the IRS website, the Justice Department's Tax Division website, and STOPFRAUD.GOV.

+More in Network World: IRS needs bigger weapons to fight exploding identity theft-related tax refund fraud schemes+

In typical refund fraud, an identity thief uses a taxpayer's name and Social

Security Number (SSN) to file for a tax refund, which IRS discovers after the legitimate taxpayer files.  The IRS has reported that identity theft grew 66% in 2013 over 2012 and has ramped up its own enforcement efforts but the problem is growing.   For example, in Fiscal Year 2013, the IRS said it initiated approximately 1,492 identity theft related criminal investigations, an increase of 66% over investigations initiated in FY 2012. Direct investigative time applied to identity theft related investigations has increased 216% over the last two years.

Prosecution recommendations, indictments, and those convicted and sentenced for identity theft violations have increased dramatically since FY 2011. Sentences handed down for convictions relating to identity theft have been significant, ranging from two months to 317 months, the IRS said

But the scammers keep coming.  Noting that anyone can be a target of these scams, Holder, in a video,  shared his own recent experience with tax refund fraud after two individuals in Georgia attempted to obtain a fraudulent refund using his personal information.

+More on Network World: IRS: Top 10 things every taxpayer should know about identity theft+

Holder said the Justice Department's Tax Division, in conjunction with the IRS and U.S. Attorneys' Offices, have prioritized the investigation and prosecution of individuals who engage in stolen identity refund fraud.  In the last year alone, the Department charged more than 880 defendants involved in stolen identity refund fraud, and the IRS reports that it resolved or closed approximately 963,000 cases involving identity theft victims.  In a 2009 audit of the IRS the agency said it stands to lose as much as $21 billion in revenue over the next five years due to identity theft.

"This is an increasingly urgent problem," said Attorney General Holder.  "Its impact can be devastating to families that are counting on legitimate tax refunds that are diverted by identity theft.  And especially in recent years, the Justice Department has seen the scale, scope, and execution of these fraud schemes grow significantly."

+More on Network World:  IRS warns on 'Dirty Dozen' tax scams for 2014+

The IRS is the hottest scam in town right now.  In March the Treasury Inspector General for Taxpayer Administration warned taxpayers to beware of phone calls from individuals claiming to represent the Internal Revenue Service in an effort to defraud them.

"This is the largest scam of its kind that we have ever seen," said J. Russell George, the Treasury Inspector General for Tax Administration. George noted that his agency has received reports of over 20,000 contacts and has become aware of thousands of victims who have collectively paid over $1 million as a result of the scam, in which individuals make unsolicited calls to taxpayers fraudulently claiming to be IRS officials.

The scam has hit taxpayers in nearly every State in the country. Callers claiming to be from the IRS tell intended victims they owe taxes and must pay using a pre-paid debit card or wire transfer. The scammers threaten those who refuse to pay with arrest, deportation or loss of a business or driver's license.

The truth is the IRS usually first contacts people by mail - not by phone - about unpaid taxes. And the IRS won't ask for payment using a pre-paid debit card or wire transfer. The IRS also won't ask for a credit card number over the phone, the agency stated.

There are a few things that should send up red flags if you get one of these calls:

  • The callers use common names and fake IRS badge numbers.
  • The perpetrators know the last four digits of the victim's Social Security Number.
  • Many make caller ID information appear as if the IRS is calling.
  • The criminals send bogus IRS e-mails to support their scam.
  • Many fraudsters call a second time claiming to be the police or department of motor vehicles, and the caller ID again supports their claim.

The IRS also recently warned consumers of this and other ongoing scams that tend to peak during tax season when many taxpayers could be on edge.  These phone scams include many variations, ranging from instances from where callers say the victims owe money or are entitled to a huge refund. Some calls can threaten arrest and threaten a driver's license revocation, the IRS stated.

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